Chapter 3: 11BP_a (page 250)

McGriff Dog Food Company normally takes 27 days to pay for average daily credit purchases of $9,530. Its average daily sales are $10,680, and it collects accounts in 32 days.
a. What is its net credit position? That is, compute its accounts receivable and accounts payable and subtract the latter from the former.
Accounts receivable = Average daily credit sales X Average collection period
Accounts payable = Average daily credit purchases X Average payment period

Short Answer

Expert verified

The net credit position is 84,450.

Step by step solution

Information provided in the question

Average credit purchases = $9,530

Average payment period = 27 days

Average daily sales = $10,680

Average collection period = 32 days

Calculation of accounts receivables

The accounts receivables is $341,760.

$\begin{array}{rcl} Accounts receivables & = & Average daily credit sales \times Average collection period \\ = & $ 10, 680 \times 32 days \\ = & $ 341, 760 \end{array}$

Calculation of accounts payable

The accounts payable is $257,310.

$\begin{array}{rcl} Accounts payable & = & Average daily credit purchase \times Average payment period \\ = & $ 9, 530 \times 27 days \\ = & $ 257, 310 \end{array}$

Calculation of net credit position

The net credit position is $84,450.

$\begin{array}{rcl} Net credit position & = & Accounts receivables - Accounts payable \\ = & $ 341, 760 - $ 257, 310 \\ = & $ 84, 450 \end{array}$

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Age of receivables April 30 20X1
1	2	3	4
Month of sales	Age of accounts	Amounts	Percent of amount due
April	0-30	\(131,250	____
March	31-60	\)93,750	____
February	61-90	\(112,500	____
January	91-120	\)37,500	____
Total receivables		$375,000	100%

January	\(28,000
February	\)19,000
March	\(12,000
April	\)14,000
May	\(8,000
June	\)6,000
July	\(22,000
August	\)26,000
September	\(29,000
October	\)34,000
November	\(42,000
December	\)24,000
Total annual sales	\(264,000

Short Answer

Step by step solution

Information provided in the question

Calculation of accounts receivables

Calculation of accounts payable

Calculation of net credit position

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